This is yet another pandemic-driven housing trend

The pandemic has catalyzed a lot of real estate trends, one of the lesser known of which is multigenerational living in luxury abodes.

Multigenerational households usually consist of three generations and are most common in Sino- and Indo-Canadian communities. However, the COVID-19 crisis has taken it to a whole new level, says Matt Smith, broker of record and licenced partner of Engel & Völkers Parry Sound.

“This has been going on for quite some time, and it’s family members pooling their assets to buy something they couldn’t otherwise afford on their own,” Smith told CREW. “It’s also very pandemic-driven; people want to have all family members under the same roof for security purposes, for lack of confidence in the long-term care facilities.”

Smith added that the trend has grown in the GTA’s Persian community, too.

Because at least three generations live under one roof, the homes tend to be no smaller than 6,500 sq ft and typically come with larger bedrooms, amenities like home gyms, pools and tennis courts, and there’s even demand for home elevators to accommodate the elderly.

Most purchases are concentrated in the northern and western peripheries of the GTA, like Mississauga, Brampton, Kleinburg, Vaughan, Nobleton, and Oxbridge.

“The trend began last summer, and I’ve done at least a dozen sales of this kind,” said Smith. “I have one in Nobleton right now that’s a mini mansion with a backyard oasis, wine bar, pool, gym, you name it. Every inquiry I’ve gotten has been a three-generation household. This trend will definitely continue, even if it wanes a little bit coming out of the pandemic. These purchases are long-term strategic family decisions.”

Multigenerational luxury households are preponderantly a result of the pandemic, and not just because, as Smith alluded to, families sought to protect each other under one roof. With schools closed and parents tasked with their children’s care in addition to their careers, grandparents have assumed the role of caregivers. Moreover, with offices closed and the work-from-home experiment a resounding success, families are no longer bound to dense urban cores with equally compressed housing lots.

Realtor Norman Xu recounted how his kids could no longer attend primary school in the wake of the COVID-19-induced lockdown in March 2020, so his parents moved into his home to help look after his children.

“I work from home and my family has been giving me a lot of care and helped me with different things like taking care of our kids since they could not go to school,” said Xu. “Since more people have had to work from home, the working generation needs better space, meaning larger homes so that they have quieter work areas. At the same time, families are no longer as sensitive to location as they were before the pandemic, so it’s logical for them to move out of core areas.”

2021-08-28 12:28:17

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Federal funds must flow for housing programs

We are in the middle of a housing affordability and supply crisis in Canada, yet the federal government has been dragging its feet on initiatives to increase the supply.

That’s the information that came to light in a report released Aug. 10 by Parliamentary Budget Officer (PBO) Yves Giroux who did a deep dive into federal program spending on housing affordability in 2021.

Bottom line here is that the feds spent less than half of the funding earmarked for a pair of important flagship housing programs.

One program is the National Housing Co-Investment Fund, which provides a mix of loans and forgivable debt to those building affordable homes and multi-use projects. Only half the $923 million in planned funding was spent over the last three years.

The other program is the Rental Construction Financing Initiative, which supports the build of new rental housing. Only 47% of the $253 million in planned funding was spent over the three years.

In the past three years, Canada Mortgage and Housing Corporation (CMHC) has spent only 49% of $1.2 billion that was allocated for the two programs.

The PBO report notes that the housing strategy of the Liberals has been limited by program lags at the CMHC and expired community housing deals with the provinces.

The fact remains that while we are in a housing crunch, funds that could help have not gone out the door. There is no excuse for this—especially at a time when we desperately need these projects.

We already have a shortage of housing in Ontario, especially in the City of Toronto, where population growth is outpacing new home construction.

According to the report, CMHC’s planned spending under the National Housing Strategy was topped up to an average of $3.7 billion annually each year, which represents a $1.2-billion-per-year, or 50% increase in nominal spending, but the government has fallen short of its aim to vastly expand the country’s affordable housing stock.

Normally, the challenge is convincing the government to pony up funds. In this case, funds are available. It’s just that they haven’t been allocated. They have the programs, but the money is not flowing.

This is not a good metric. In an area where the federal government is supposed to be active, it is failing miserably.

The report projects that the number of households in need of an adequate or affordable place to live will increase to about 1.8 million within five years unless more funding flows toward the problem.

Canada’s population is expected to grow by up to 50% over the next five decades, with Ontario accounting for a good chunk of that growth. This will put even more pressure on our province to provide housing. More than 400,000 immigrants are expected to move to Canada in each of the next three years.

The Centre for Urban Research and Land Development at Ryerson University recently reported that, using a calculation from experts from the governments of Canada and British Columbia, an average of 79,300 units per year must be built from 2021 to 2031 to make homes more affordable.

In a healthy housing market, you’d have about six months of housing supply, but we don’t. Across Canada we have about 2.8 months of inventory according to Statistics Canada.

Toronto is already one of the most unaffordable housing markets in the world, according to a report released earlier this year by the Urban Reform Institute. The city ranked fifth on the list of top “severely unaffordable” cities around the world—up one spot from last year’s ranking—and certainly not where we want to be.

The shortage is costing us economically. For example, the Toronto Region Board of Trade and WoodGreen Community Services indicated in a report that the shortage of affordable housing is costing the GTA up to nearly $8 billion annually, or up to almost $38 billion over a five-year period.

We have the lowest number of housing units per 1,000 residents of any G7 country, with 424 homes per 1,000 Canadians. Again, not where we want to be.

More Canadians are finding themselves unable to afford a home. The future does not look any brighter, considering anticipated population growth.

It’s time to spend the money that’s already been earmarked to make sure homes are built for Canadians.

Richard Lyall, president of RESCON, has represented the building industry in Ontario since 1991. Contact him at [email protected]

2021-08-28 12:47:24

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Why don’t insurance companies discount green upgrades?

Green home upgrades are growing in popularity, but anyone expecting a break on their home insurance premiums as a result might have to hold their breath a little longer.

Insurance companies are always evaluating risk but that becomes difficult when the sample size is paltry. Justin Thouin, co-founder of, which released a report on the subject, told CREW that while Canadian homeowners should consider making efficiency upgrades, depending on what they are, insurance companies will struggle predicting whether or not they will reduce the risk of future claims.

“If people use solar power or do things to reduce gas emissions, things that will improve long-term climate change and reduce things like wildfires and hail storms—catastrophic events—that will eventually allow insurance companies to charge less because they spend billions of dollars on catastrophic events, however, it’s difficult for companies to assign risk reduction for someone who puts a solar panel on their house.”

That isn’t to suggest that green home upgrades aren’t worth pursuing. For example, high-ratio mortgage holders can benefit from a Canada Mortgage and Housing Corporation premium refund of up to 25% if they buy or build an energy efficient home, or even if they make the according renovations themselves.

Still, those savings won’t come through typical home insurance but rather mortgage loan insurance, says Thouin, but there are ways to accrue savings.

“If you install energy efficient pipes and plumbing systems to use water more efficiently, i.e. less water, it will reduce the risk of cracks, leaks and poor water quality, which lowers the risk of flooding in your home, therefore, the insurance company will lower your insurance,” said Thouin.

Nevertheless, it might be a while yet till insurance companies begin discounting green upgrades to homes, and Thouin believes one way to get the ball rolling is through government intervention.

“When it comes to green rebates, it’s really going to have to be a partnership between government and insurance companies working together,” he said. “It’s going to take some time to have enough individual dwellings to make catastrophic events happen less frequently, and until then perhaps the government can provide insurance companies with subsidies they could pass along to individuals who install green energy efficient improvements to their homes.”

2021-08-27 13:54:06

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Detached homes cost $1 million in 54 of 60 TRREB areas

Out of 60 areas covered by the Toronto Regional Real Estate Board, only six had detached homes priced below $1 million, according to an analysis by RE/MAX.

They were all in the 905 regions.

“Halfway into 2021 and the Greater Toronto housing market continues to fire on all cylinders,” Christopher Alexander, senior vice president of RE/MAX Canada, said in the analysis. “Overall home sales topped 70,000 between January and June, the strongest first half in the history of the Toronto Regional Real Estate Board, while values smashed through record levels set in previous years. Without a serious influx of new listings to ease the upward pressure on pricing in the coming months, the market will likely continue on this upward trajectory.”

Active listings, of which there were 11,297 in the first half of the year, declined by 35% from the 10-year average of 17,260, pushing up the price of detached homes in 97% of TRREB areas. Almost half of those areas saw values surge by 25% year-over-year.

At 46.4%, Uxbridge saw the most appreciation compared to the first half of 2020, with detached homes rising to $1,365,933 in H1-2021 from $933,368. The second most appreciation occurred in Scugog, where prices rose by 43.9% to $986,878 from $685,828, while Milton, at 34.2%, which drove up prices to $1,314,265 from $979,646, rounded out the top-10.

Accompanying the significant jump in detached home values was increased sales—they were up 175% in Dufferin Grove, Little Portugal, Trinity-Bellwoods, Plamerston-Little Iltaly, Niagara, University, Kensington-Chinatown, Bay St. Corridor, and Waterfront Communities in Toronto’s core. Sales also surged by 109.6% in York Region, 98.2% in Peel Region, and 96.7% in Central Toronto.

The analysis also showed that first-time homebuyers left Toronto to purchase housing further away, while move-up buyers, buoyed by surges to their equity, did the opposite.

“More transit options and hybrid work schedules have made relocation to the city’s outlying areas even more attractive. First-time buyers are feeling the squeeze but are still determined to become homeowners, with many happily travelling further afield to make it happen while working from home. The beneficiaries of the trend have been suburban communities in Durham, Peel, Dufferin County and the most northern part of York Region,” said Alexander.

“While first-time buyers are grappling with supply and demand, existing homeowners have been reaping the rewards as equity gains have soared over the past two and half years. In recent months, many move-up buyers have taken advantage of lower interest rates and those equity gains to trade up to larger homes or neighbourhoods closer to the downtown core—with not too much change to their monthly mortgage payments.”

As frenetic as market activity has been, Alexander believes it’s the calm before the storm.

“The Bank of Canada is committed to holding interest rates at current historically low levels for at least another year. Immigration is expected to bring another 1.2 million permanent residents to the country over the next three years. With all this stimulus at play, comparisons have been made to the Roaring 1920s—let’s just hope that this script has a better ending.”

2021-08-20 13:16:50

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Would NDP’s 30-year amortization help housing affordability?

With the federal election looming on September 20, the NDP have proposed reintroducing a 30-year amortization on high-ratio mortgages, but the president of Mortgage Architects has an even more radical idea.

“Personally, I was lobbying for a 50-year amortization for first-time homebuyers, if you want to stimulate the economy and get young homebuyers into the market, even though they will still have to qualify under the same standard,” said Dustan Woodhouse. “Another reason is we have a principal paydown problem in Canada, and that means too much of people’s mortgage payments go towards paying the principal.”

In 1995, an average of six cents on every dollar went towards paying mortgage principals because of how high interest was, and today it’s surged to $0.66. Although that might not sound like a bad thing, Woodhouse says that people in their 20s and 30s are still accruing assets and shouldn’t have to spend so much of their incomes on paying mortgage debt.

“It’s great people are getting out of debt at that pace, but they don’t have to when they’re 25 or 30 years old. They can take an extra five years to pay off a mortgage, and it’s not a big deal because it frees up an extra couple of hundred bucks or so a month so they can buy a new couch or upgrade their car sooner. Most of us spend our 20s and 30s accumulating the fundamental basics of life, while people in their 60s and 70s are getting rid of that stuff,” said Woodhouse.

“When you’re in your 20s and 30s buying your first condo or townhouse and trying to work your way up property ladder, you could use a little bit of extra cash, which goes into the general economy and then boosts the overall economy, and that’s really important to a lot of economists out there and to the federal government. Stability in the housing market matters but giving people an extra five or 10 years to amortize their mortgage just makes sense.”

However, according to Shawn Stillman, principal of Mortgage Outlet, a 30-year amortization on high-ratio mortgages wouldn’t solve the issues surrounding housing affordability, which the NDP is putatively trying to do with its proposal. For starters, housing supply isn’t commensurately increasing with demand, and Stillman says that’s the crux of Canada’s housing crisis.

“We’ve had a massive amount of immigration to Canada and the housing stock hasn’t kept up,” he said. “Nobody ever wants to say this but you can’t increase demand without looking at supply, and no one will ever want to say that we should cut down immigration because they will be deemed to be a racist or discriminatory, but no matter what happens, even if you did a 30-year amortization, in reality it will make no change on affordability because prices will just keep going up.”

Laura Martin, COO of Matrix Mortgage Global, disagrees with Stillman’s assessment and says that the real barrier to enter a high-ratio mortgage has always been income qualification. While not wholly a panacea, stretching the amortization by five years would alleviate some pressure on homebuyers, she says.

“Using immigration as a scapegoat for the lack of affordability totally fails to account for how and why prices skyrocketed while the borders were closed, not to mention overlooking the fact that the overwhelming majority of immigrants admitted to Canada who are not from the U.S. or U.K. are working in low-to-medium paying jobs like manufacturing, healthcare, elderly care, retail and so forth,” she said.

Martin says that on a $600,000 mortgage at 2.5% interest with a 30-year amortization, the monthly payment is $2,366.70, which can be supported by a $96,000 annual income at a 35% gross debt service (GDS) threshold. That same mortgage on a 25-year amortization, however, would require an annual income of $108,000 to reach 35% GDS.

“Raising the amortization to 30 years, as it has been for decades before, will help both new Canadians and citizens become homeowners,” said Martin.

On the question of solving Canada’s housing crisis, Stillman is even more critical of the NDP’s proposal to raise the minimum wage to $20 because it will trigger higher inflation and, by extension, housing prices.

“When you increase the minimum wage, every other wage goes up along with it,” he said. “If you bring it to $20, inflation will go up. Everybody moves up. Socialism is a beautiful theory but in reality it doesn’t work. If you artificially raise the floor, everything else rises too. Nobody in Canada buys homes for anything less than within 5-10% of their maximum affordability, so this will cause more housing price inflation. Those same people who get 25-year amortizations buying the maximum house they can afford would be able to do a 30-year amortization and they’ll all be fighting over the same housing, and prices will rise to match that.”

2021-08-20 14:08:16

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This Toronto neighbourhood is a known flood zone

Shamil Shamilov and his wife lived in Toronto’s Midtown neighbourhood a few years ago where houses and the city’s infrastructure are older—in particular, sewer pipes are narrower—and where the couple experienced two ghastly floods.

“Along Avenue Rd. and Lawrence Ave., there are a lot of sewer backups. My house that flooded was at Lawrence and Keele, and for normal flooding you could do the waterproofing and protect most of the house, but sewer backups is the risk that come with buying in an older neighbourhood because the stormwater infrastructure is outdated and that means pipes can go over capacity,” said Shamilov.

“If an area is prone to flooding, you put a good sump pump in and do waterproofing, but with a sewer backup, even if you put in a backwater valve, it doesn’t always work because you’re supposed to clean it from debris every now and then.”

The first flood in Shamilov’s house was caused by a sewer backup, which spilled out of the toilet and bathtub, and compelled him to undertake a renovation that involved thoroughly investing in waterproofing the house, a sump pump and a backwater valve. Unfortunately, none of those measures prevented a second flood.

“Two years later, the sewer backed up again even though I took all the precautions, because this area is prone to sewer backups and my backwater water value didn’t work,” he said. “My wife and I were celebrating our anniversary that day and were about to go out for dinner when the toilet and bathtub flooded. We listed the house, sold it and moved into a loft downtown.”

The Shamilovs called a disaster restoration company after both floods, which involved pumping out the contents of the flood, then cutting out damaged baseboards, drywall and flooring, and then chemically treating the affected areas. Unsurprisingly, Shamilov, whose insurance company covered the expensive process the first time, had a higher deductible the second time because the area is a known flood zone.

Asked if his company receives plenty of phone calls for flooding from Midtown addresses, Tony Lleschi, a certified technician and senior manager at Restoration Group, said, “Oh yeah. That is a low-peak area and the water races up through the draining system, backs up and that creates a lot of flooding around the area.”

The result is often similar to what happened at the former Shamilov residence, he added, because not very many of Midtown’s older homes have sup pumps. Moreover, people don’t typically invest in preventative measures because of their hefty price tags. However, because the restoration process is twofold—there’s the emergency remediation and then the repairs, each of which run between $6,000-40,000—it might be wise to make adjustments.

“We get calls from Midtown all throughout the year, any time there’s bad weather. Sometimes we only get a couple of calls a month, and a month later we’ll get 40. It depends on the weather but we always get calls from the area,” said Lleschi, adding that there’s often a concentration of calls from the east part of Midtown by the Don Valley Parkway, which itself was the scene of severe flooding in 2013.

“People can, of course, look at systems and see what can be done to upgrade them, and make sure to always look around the property for waterproofing. Always check the basements to see if systems need upgrading. The city helps subsidize the cost of flood prevention, too.”

2021-08-20 13:25:51

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Canadian inflation hits highest reading in two decades

This morning’s Statistics Canada release showed that the July CPI surged to a 3.7% year-over-year pace, well above the 3.1% pace recorded in June. This is now the fourth consecutive month in which inflation is above the 1% to 3% target band of the Bank of Canada. And given the flash election, opposition parties are already making hay. “The numbers released today make it clear that under Justin Trudeau, Canadians are experiencing a cost of living crisis,” Conservative leader Erin O’Toole said in a statement. He went on to suggest that the Liberal government is stoking inflation with its debt-financed government spending programs.

While it is true that deficit spending has surged during the pandemic, the same is also true for nearly every country in the world. Moreover, accelerating inflation is a global phenomenon and most central banks believe it to be temporary. Certainly, Tiff Macklem is firmly of that view, as is the Fed Chairman Jerome Powell.

Supply disruptions and base effects have largely caused the rise in inflation. Semiconductor production, for example, slumped during the 2020 lockdowns, and then couldn’t be ramped up fast enough when demand for cars and electronics returned, leading the prices of new and used autos to rise at a record pace. Prices for airfares and hotel stays also jumped. Companies found themselves short of workers as they reopened, leading some to offer bonuses or boost wages and subsequently raise prices for consumers.

Central bankers believe that the price pressures are transitory, representing temporary shocks associated with the reopening of the economy. Lumber prices, for example, spiked when demand for new homes returned and have since normalized (see the chart below). To be sure, above-target inflation has heightened uncertainty. The central banks do not want to choke off the economic recovery through misplaced inflation fears. Many Canadians remain out of work, and long-term unemployment is still very high. Moreover, the recent surge of the delta variant proves that the recovery is uncertain.

Bank of Canada Governor Tiff Macklem, whose latest forecasts show inflation creeping up to 3.9% in the third quarter before easing at the end of the year, has warned against overreacting to the “temporary” spike.

Shelter prices rising fastest

Prices rose faster year-over-year in six of the eight major components of Canadian inflation in July, with shelter prices contributing the most to the all-items increase. Conversely, prices for clothing and footwear and alcoholic beverages, tobacco products and recreational cannabis slowed on a year-over-year basis in July compared with June. Year over year, gasoline prices rose less in July (+30.9%) than in June (+32.0%). A base-year effect continued to impact the gasoline index, as prices in July 2020 increased 4.4% on a month-over-month basis when many businesses and services reopened.

In July 2021, gasoline prices increased 3.5% month over month, as oil production by OPEC+ (countries from the Organization of Petroleum Exporting Countries Plus) remained below pre-pandemic levels though global demand increased.

The homeowners’ replacement cost index, which is related to the price of new homes, continued trending upward, rising 13.8% year over year in July, the largest yearly increase since October 1987. Similarly, the other owned accommodation expenses index, which includes commission fees on the sale of real estate, was up 13.4% year over year in July.

Year-over-year price growth for goods rose at a faster pace in July (+5%) than in June (+4.5%), with durable goods (+5%) accelerating the most. The purchase of passenger vehicles index contributed the most to the increase, rising 5.5% year over year in July. The gain was partially attributable to the global shortage of semiconductor chips. Prices for upholstered furniture rose 13.4% year-over-year in July, largely due to lower supply and higher input costs.

Core measures

The average of core inflation readings, a better gauge of underlying price pressures, rose to 2.47% in July, the highest since 2009. Monthly, prices rose 0.6% versus a consensus estimate of 0.3%. Rising costs to own a home are one of the biggest contributors to the elevated inflation rate, following a surge in real estate prices over the past year.

Bottom line

Today’s inflation data likely did little to alter the Bank of Canada’s view that above-target inflation will be a transitory phenomenon. They are already ahead of most central banks in tapering the stimulus coming from quantitative easing. They do not expect to start increasing interest rates until the labour markets have returned to full employment, which they judge to occur in the second half of 2022. In the meantime, pent-up demand in Canada is huge as people tap into their involuntary savings during the lockdown to pay higher prices at restaurants, grocery stores and gas stations. Financial markets appear to be sanguine about the prospect for rate hikes, as bond yields have been trading in a very narrow range.

2021-08-20 09:43:14

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Lawsuit alleges mortgage lender is a ‘Ponzi scheme’

Romspen Mortgage Limited Partnership is being sued by a former client who alleges that the fund is being run as a Ponzi scheme and that it engaged in a pattern of fraudulent conduct that resulted in him losing a commercial property in Austin, Texas, through court proceedings.

Daniel White, the complainant—who’s additionally suing Romspen Investment Corporation—purchased the 109-acre property, which he’d initially intended to carve up and sell but, after visiting the property, fell enamoured and envisioned developing a wellness complex. However, according to court filings, White, who defaulted on the loan-to-own mortgage provided by Romspen, alleges that the “Defendants fraudulently manufactured and then inflated the property’s debt. Defendants then fraudulently pushed Mr. White and his assets towards bankruptcy, positioning themselves to take possession of multiple real estate and business assets owned by Mr. White as a lender bidder.”

Additionally, White’s amended complaint alleges the following:

“Plaintiff alleges that Romspen’s business is, in effect, nothing more than a long running and far-reaching (and, at least thus far, highly successful) Ponzi scheme,” the filing said.

In fact, the trustee in the Chapter 11 bankruptcy case involving White filed an emergency motion to limit Romspen’s credit bid, alleging that the mortgage firm systematically starved White, the debtor, of crucial funding, which it had been contractually obligated to provide, halting redevelopment of the Austin-based property that had initially been appraised for $350 million but was bought by Rompsen for $46 million through court proceedings.

The bankruptcy trustee’s motion explains that upon undertaking an investigation into Romspen’s prepetition actions, liens and claims, including thousands of pages of documents and conducting interviews with witnesses, it decided to prepare an adversary complaint against Romspen seeking a disallowance of the lender’s claims, an equitable subordination of its claim and assignment of its liens to the estate. Moreover, it seeks punitive damages.

“In justifying this relief, the Trustee’s investigation supports the accusation against Romspen… and many other accusations,” stated the motion. “Rompsen’s conduct with respect to the Loan strongly suggests Romspen never intended to perform its funding obligations to the Debtor. Instead, Romspen delayed funding the Debtor’s draws under the Loan beginning with the second draw, refused to consent to an already authorized PACE [property assessed clean energy financing] Loan, required to fund critical environmental components of the Project, and manufactured a series of pretextual allegations of default against the Debtor. Romspen ignored its own professionals’ warnings and pleas, improperly starved the Debtor of the funding needed to successfully redevelop the Project, and forced defaults that led the Debtor into foreclosure, litigation, receivership, and involuntary bankruptcy, leaving millions of dollars in credit claims unpaid.”

Bruce J. Duke, Dan White’s legal representation, noted that the bankruptcy trustee independently concluded that the mortgage lender had defrauded White. Court filings claim that Romspen denied White one-third of the budgeted financing for the project, thereby sealing his fate.

“Rompsen had put in a credit bid on the property in Texas and the trustee put in a tremendous objection to their credit bid. They filed it on an emergency basis. They go through the thread of Rompsen’s bid and assert serious allegations against Romspen,” Duke told CREW.

As a co-developer of the project, the trustee’s motion says, Romspen tried to wrest control of the project from White rather than protect its security interest and repayment of the loan. The motion additionally asserts that Romspen and its agents co-opted White’s decision making at critical junctures, which “deviates significantly from the lender/borrower relationship, providing Romspen improper influence of the Debtor’s pre-bankruptcy decision making operations.” Moreover, the trustee alleges that Romspen sabotaged White’s ability to secure a PACE loan, which it knew he needed to complete the project.

White’s relationship to Romspen can be traced back about 15 years to the company’s managing general partner, Wesley Roitman, who helped secure a $15 million loan. In 2008, having settled all outstanding debts, White left for South America where he worked in forest preservation and on other environmental social programs. Upon receiving a call from Romspen inviting him into a deal for the $109-acre Austin property, an old Motorola campus with chip manufacturing facilities and laboratories, White agreed and paid $5-6 million. In an interview, White told CREW that the whole ordeal wiped out his family’s trust but that he has good friends helping pay his legal fees. He also alleges that Romspen has cleaned out other debtors like him, leaving them incapable of litigating.

“Now [Romspen] owns the property and they’re developing it in Austin, which is the hottest market in North America, for sure,” said White. “I lost my land and my money and the security over my trust. Luckily, I have good friends and I have the ability to fight them and pay the legal fees. We have the evidence, but not the funds to defend it, and that’s what happens to the majority of people Romspen takes advantage of—they clean them out so they can’t fight back. But, fortunately, I have friends and sufficient capital.”

Romspen, for its part, is suing White for the $125 million it loaned, claiming that a promissory note for that amount is outstanding.

Romspen declined to be interviewed for this story but provided CREW an emailed statement: “For over 60 years, Romspen, our employees and investors have grown our business on the foundations of professional integrity and ethical business practices. Romspen has, and will continue to, aggressively defend itself against litigation and to enforce its loan recovery remedies. We deny all allegations claimed by the plaintiff in this matter and are highly confident we will be successful in resolving both the U.S. and Canadian litigation in our favour.”

Lawyer David Franklin, who alerted the RCMP to the alleged syndicated mortgage fraud perpetrated by Fortress Real Developments, as well as the Ontario Provincial Police to alleged fraud by Tier 1 Mortgage Corporation, says that White appears to have a strong case against Romspen and believes he will prevail.

“Dan White got involved with Wesley Roitman to make a mortgage loan and Wesley made a commitment but did not make the advances, and as a result the whole deal fell apart,” said Franklin. “Dan will collect. He has a very strong case and the court in Texas stayed the proceedings because Romspen can’t establish that any money is owing. Romspen can’t show they’re owed money.”

2021-08-18 13:35:55

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The slowdown in Canadian housing continued in July

Existing home sales fell 3.5% on a month-over-month basis in July, marking the smallest of the four consecutive declines since March.

Today the Canadian Real Estate Association (CREA) released statistics showing national existing home sales fell 3.5% nationally from June to July 2021—the fourth consecutive monthly decline. Over the same period, the number of newly listed properties dropped 8.8%, and the MLS Home Price Index rose 0.6% and was up 22.2% year-over-year.

While sales are now down a cumulative 28% from the March peak, Canadian housing markets are still historically quite active (see Chart below). In July, the decline in sales activity was not as widespread geographically as in prior months, although sales were down in roughly two-thirds of all local markets. Edmonton and Calgary led the slowdown, but these cities didn’t experience falling sales until recently. In Montreal, in contrast, where sales began to moderate at the start of the year, activity edged up in July. The actual (not seasonally adjusted) number of transactions in July 2021 was down 15.2% on a year-over-year basis from the record for that month set last July. July 2021 sales nonetheless still marked the second-best month of July on record.

“While the moderation of sales activity continues to capture most of the headlines these days, it’s record-low inventories that should be our focus,” said Cliff Stevenson, chair of CREA. Most markets are in sellers’ market territory.

New listings

The number of newly listed homes dropped by 8.8% in July compared to June, with declines led by Canada’s largest cities—the GTA, Montreal, Vancouver and Calgary. Across the country, new supply was down in about three-quarters of all markets in July.

This was enough to noticeably tighten the sales-to-new listings ratio despite sales activity also slowing on the month. The national sales-to-new listings ratio was 74% in July 2021, up from 69.9% in June. The long-term average for the national sales-to-new listings ratio is 54.7%.

Based on a comparison of sales-to-new-listings ratio with long-term averages, the tightening of market conditions in July tipped a small majority of local markets back into seller’s market territory, reversing the trend of more balanced markets seen in June.

Another piece of evidence that conditions may be starting to stabilize was the number of months of inventory. There were 2.3 months of inventory on a national basis at the end of July 2021, unchanged from June. This is extremely low—still indicative of a strong seller’s market at the national level and most local markets. The long-term average for this measure is twice where it stands today.

Home prices

The Aggregate Composite MLS Home Price Index (MLS HPI) rose 0.6% month-over-month in July 2021, continuing the trend of decelerating month-over-month growth that began in March. That deceleration has yet to show up in any noticeable way on the East Coast, where property is relatively more affordable.

Additionally, a more recent point worth noting (and watching) just in the last month has seen prices for certain property types in certain Ontario markets look like they might be re-accelerating. This could be in line with a re-tightening of market conditions in some areas.

The non-seasonally adjusted Aggregate Composite MLS HPI was up 22.2% on a year-over-year basis in July. While still a substantial gain, it was, as expected, down from the record 24.4% year-over-year increase in June. The reason the year-over-year comparison has started to fall is that we are now more than a year removed from when prices really took off last year, so last year’s price levels are now catching up with this year’s, even though prices are currently still rising from month to month.

Looking across the country, year-over-year price growth averages around 20% in B.C., though it is lower in Vancouver and higher in other parts of the province. Year-over-year price gains in the 10% range were recorded in Alberta and Saskatchewan, while gains are closer to 15% in Manitoba. Ontario sees an average year-over-year rate of price growth in the 30% range. However, as with B.C., gains are notably lower in the GTA and considerably higher in most other parts of the province. The opposite is true in Quebec, where Montreal is in the 25% range, and Quebec City is in the 15% range. Price growth is running a little above 30% in New Brunswick, while Newfoundland and Labrador is in the 10% range.


Bottom line

Sales activity will continue to gradually cool over the next year, but it will take higher interest rates to soften the housing market in a meaningful way. Local housing markets are cooling off as prospective buyers contend with a dearth of houses for sale. Though increasing vaccination rates have begun to bring a return to normal life in Canada, that’s left the country to contend with one of the developed world’s most severe housing shortages and little prospect of much new supply becoming available soon.

2021-08-17 12:42:43

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There’s more to an investment property than its cap rate

Real estate investors often think that cap rates alone are the greatest determinant of a prospective property’s value, but that isn’t the case.

“I think, to a certain extent, it’s an important number to know. But I don’t think it should be the only number informing an investor’s decision to buy something. There’s a lot more to it than just knowing the capitalization rate because there could be a lot of variations,” Cliff Fraser, chief business development officer of Burlington, Ontario-based Equiton Inc., said of cap rates, which are calculated by taking the net operating income (NOI) and dividing it by the building’s value.

“It’s important to know the cap rate of a property, but it’s also critical to understand it may be different than the ‘average’ cap rate of the area and examine the nuances of a particular building that you are considering. For example, a property in Toronto may be more desirable depending on how close it is to public transit.”

As a private REIT, Equiton is an active real estate investor that provides its clients passive investment opportunities. Moreover, it focuses on creating passive real estate investment funds for clients that have earned 7-12% cash flow and share price returns. In addition to investing in the multifamily residential sector, Equiton is involved in the commercial and industrial sectors, real estate development and lending.

As such, the company is a big believer in stringent due diligence.

“If you’re looking at buying an income-producing asset, whether multifamily, commercial or industrial, you want to have a good understanding of the building itself but also of the neighbourhood and the city that the building is in,” said Fraser. “You want to look at competitor buildings in and around the neighbourhood and how they’re operating. Have there been nearby sales recently—you can compare pricing that way—but because income-producing assets are a business, you have to know what kind of revenue it will generate, what kind of expenses it will incur, and what the leverage is. If you get a mortgage on the property, you want a competitive rate but you don’t want to overleverage yourself, either. The cost of borrowing is cheap, but you will kill the cash flow if all the money you generate from the NOI goes to feed the monthly mortgage payment.”

Equiton uses its strong relationships with lending institutions to secure favourable rates on projects, which is especially attractive for investors considering that multifamily dwellings composed of over 40 units may qualify for commercial mortgages.

Fraser says there are other ways to augment a multifamily investment property’s value, and while the savings might not manifest immediately, rest assured the building’s expenses will decline in time.

“Again, when trying to understand a property’s potential value, pull back the curtains and understand the true net operating income opportunity. Just because somebody runs their business at a 5% return, it doesn’t mean yours can’t be higher. See what you can do to extract more net operating income from the property,” said Fraser.

“Look to see if there are opportunities to increase the rent, which might come through making improvements to units or by simply asking for market rent. There are also opportunities to increase non-rent revenue items, like charging for parking or utilities. There are ways to reduce expenses, which takes longer to get the full payback, but you can use low-flow toilets, LED lighting, or you can use energy efficient windows and appliances. Those are some of the things that owners neglect to take into consideration that are also good for the environment.”

2021-08-17 13:09:25

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